Can Wind Power Keep Energy Prices in Check?

Our system of checks and balances in government is important to our democracy. Each of the three branches of government limits the powers of the others to prevent one branch from becoming too powerful. In a similar manner, wind power may serve as a check to future natural gas price hikes.

The U.S. Department of Energy recently authorized a second Texas-based export facility of domestically produced liquefied natural gas (LNG) to ship to countries in Asia and Europe. Many U.S. energy companies will likely take advantage of higher prices for natural gas in Asia by exporting U.S. LNG — gas converted to liquid form to make it easier to transport — to Korea and Japan, especially after Fukushima. The Federal Energy Regulatory Commission (FERC) is already reviewing 20 applications for LNG export facilities. If approved, we could see a significant amount of our domestic LNG being shipped overseas. More LNG going overseas will likely increase prices in the U.S. due to a decreased supply at home.

The Balance of Wind

Dennis McKinley, Director of North American Wind Power Business for ABB North America, which works with turbine OEMs and wind developers, said wind power is an important part of our energy mix.

“[Wind] acts as a check and balance system to keep natural gas prices in check,” McKinley said. “Manufacturing is beginning to return to the U.S. because of low natural gas prices. But if we just go all in with gas that makes gas prices rise even more.”

Natural gas prices fluctuate over time with highs and lows, said McKinley. With wind, companies always know what the fuel cost will be, which is why wind power plants are able to sign 20-year power purchase agreements, he said. “As exports increase, the price for LNG will increase, but there will be a line there — at some point, it will be cheaper to install wind and solar than to build new natural gas plants for power generation.”

McKinley suggests that without wind energy to provide competition for natural gas as an energy source, natural gas prices will be allowed to rise unchecked.

Development Requirements

If wind power is to compete with natural gas, the U.S. grid system will need to be updated, said McKinley. About 80 percent of the power load demand is on either coast (West and East), but most of the wind generating capacity happens in the plains, he said.

For a wind farm to go up, developers need to figure out how to deal with transmission issues. Utilities today were built up over time by local wind farms that will drop a substation into an area to accommodate a local population, he said. That model has created a U.S. grid system that resembles a series of spider webs that aren’t connected together.

“We don’t really have a national infrastructure -- a more modern grid like Europe and China where you can connect across multiple regions and areas,” he said. “The infrastructure we have here is lacking compared to other countries in the world. We need smarter grids and better infrastructure.”

ABB is working on a developing a high voltage DC circuit breaker that will allow utilities to flip their transmission lines to HVDC to transmit power down long-distance lines, then flip back to AC once power reaches the end user. The new circuit breaker will also allow utilities to transmit power “ocean-to-ocean” similar to our national highway system and also section off areas that need to be fixed and keep transmitting power in other areas.

Back to Our Old Ways?

Some energy company leaders have predicted that the LNG void will be filled by coal. In a recent CNBC interview, Andrew Lipow, President of Lipow Oil, said he believes utilities will switch back to coal if the price of natural gas continues to rise. He sees natural gas rising here to $5 per million BTUs (British Thermal Units) in the next couple of years. The cost is about $12/ MBTUs in Europe and $14/MBTUs in Japan right now, Lipow said.

McKinley doesn’t believe coal will replace natural gas if prices rise, that is why wind development is so important, he said. “Approximately 60 coal-fired plants will be retired in the next five years,” he said. “I think it would take a major shift to stop that from happening. Once that happens, utilities will need to fill the void.” Some coal-fired power plants are already beginning to shut down or are being retrofitted for natural gas.

Addressing Intermittency

Greg Worden, a small wind project developer, green business consultant, and adjunct professor of business at Marylhurst University in Oregon, believes natural gas complements renewable energy well because it provides backup electricity generation when the wind falls and has a rapid ramp up capability. With the enormous discoveries of gas in Pennsylvania, New York and North Dakota, many states are fast laying plans to bring gas to their region through fast tracking pipeline permits, especially in Maine, he said.

“Multiple gas companies are already making the pitch to cities, towns, and even fleet vehicle owners,” he said. “Within a decade, so goes the promise, New England states could nearly rid themselves of coal-fired electricity generation plants as well as oil-burning furnaces in homes. This cleaner energy future dovetails perfectly with intermittent renewable sources of electricity such as wind, solar, wave and tidal generators.”

But Worden sees three major downsides to increased natural gas development. First, gas could compete directly with renewables; second, prices for LNG overseas may exceed domestic prices; and third, when overall fuel prices, especially gasoline, drop there is a tendency to forget about renewables, he said. For instance, 16 of the 29 states with renewable energy portfolio standards are already considering reducing the quotas in favor of natural gas.

Forgetting about wind energy is a mistake, according to McKinley. McKinley sees wind energy development as important to a healthy energy economy because consumers and businesses will turn to wind energy if natural gas prices rise significantly due to an increase in LNG exports. This could happen more quickly than consumers think if the proposed additional 20 export facilities are approved. In this way, wind energy may provide consumers with more power than just electricity for their homes.

6 Comments

Wind-farm owners would be allowed to be hybrid wind and natural gas operators to help balance the O&M costs and would probably do a better job of keeping the profits focused on wind and not gas. An additional tax would be imposed if they cross the line and try to take business away from gas only producers. In order for this to possibly work, strict regulations need to be in place (in tax codes) to ensure maximum wind utilization. This type of development would become more clear if the existing one time infrastructure costs are paid off (Tower, foundation, access roads, transmission towers, bulk cable expenses, etc...)

Clearly the answer to the question posed by the title of this blog is "No".

Wind energy does has a horrific impact on "spot" market prices. So, for example, when the wind is blowing in Texas the generated electricity is told at negative prices - something only made possible by the Production Tax Credit (PTC). This is totally irrational and is undermining the stability of the grid and the economics of the generation fleet as a whole.

The ONLY way we will survive additional wind generation without utility scale storage is to raise prices significantly when the wind isn't blowing so that thermal generators can stay afloat. In Texas, because they refuse to look at the logical solution of re-regulating prices, they have raised the spot price ceiling to $9,000/MW-Hour - the average is $45/MW-Hour. The theory seems to be that if you allow a generator to charge 170x the average price for a few hours here and there they will be able to make a profit. In my opinion "that dog don't hunt!"

I have covered this in detail in my blog postings: http://www.debarel.com/blog1

Connecticut just voted to accept large hydropower as part of its renewables portfolio. Hopefully Maine will do the same. Southern New England needs reliable, clean, inexpensive energy. Canada can provide all the hydropower we need.

ANONYMOUS
June 26, 2013

Euphoric article considering that Canada is already sending vast quantities of cheap - 6 cents/KWH electricity to New England States like Vermont, and states like CONN. are lifting renewable caps.Maine is on the verge of joining them, reducing subsidies, and has already made inroads into wind farm siting.

Wind power is neither inexpensive, nor reliable, nor demand actuated.

NG is primarily a fuel and as more and more vehicles are converted to run on it, will have even a higher demand, initiating more exploration and pipelines/rail shipments.

Even more advantageous are the new organic waste to energy plants which produce Methane that is refined to NG. Wind power does nothing to reduce our mountains of organic waste, so it loses points there.

Even offshore wind, presents distribution and maintenance issues, making it the most expensive electricity of all.

While new generation capacity often needs additional grid development, natural gas generating stations are also supported by pipeline networks. While NG seems like an unlimited option, congestion of NG networks is a constraint, mostly in highly populated regions where additional generating capacity is most needed. Thermal power stations additionally require access to water and lots of it (the #1 consumer of water). Coal also needs access to considerable areas of land for the disposal of liquid and solid waste (over 25 years this is more land area than needed to produce the same kWh from a wind farm - the latter not permanently consuming the land area). These are all additional constraints.
It seems that when any newer generating technology is discussed, the sorry state of the grid becomes part of the discussion, frequently with the pretense that this is only an issue for new technology solutions and not for all technologies in general. Logistically, organizationally and technologically, the grid is a sorry excuse. HVDC (allowing that not so very high voltage qualifies) still comprises ~1.5% of the whole grid while HVAC above 700 kV comprises ~1.6%. This is to be expected when deployment is incremental rather than structural and where efficiency is unimportant as the costs of inefficient transmission and distribution are readily passed on to the consumer and no one, not even the consumer, has any concern about the cost of inefficiency. The fact that the general discussion about grid development only ever arises in the context of new capacity coming on-line and almost never about the system as a whole suggests that the current patchwork approach will persist indefinitely.
Generation could also provide an assist if the principle of land-use monopoly was abandoned so that multiple generation technologies could be co-located or at least sited in close proximity.

"Our system of checks and balances in government is important to our democracy. Each of the three branches of government limits the powers of the others to prevent one branch from becoming too powerful."

In theory, yes, however the current reality is quite different....

.....Bill

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Lauren Poole is a journalist and science writer based in Colorado. She worked for 11 years at the National Renewable Energy Laboratory, where she wrote extensively about solar and wind energy technologies and policy issues before starting...